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3Com Corp.'s announcement Friday that it will be acquired for $2.2 billion by private equity firm Bain Captial LLC and Huawei Technologies Co. Ltd. was a pleasant surprise to shareholders, who had long watched the company's value drift as it fought a long and valiant battle to remain independent. The Marlborough, Mass., company had over the past year taken a number of aggressive steps designed to boost its performance as a standalone company. Most curious, some analysts said, was the fact China's Huawei, the former partner of 3Com with which it had formally severed ties just months ago, would take a minority share in the company alongside Bain. "It was a surprise; it was baffling," said Manuel Recarey, an analyst with Kaufman Bros. in New York. Shares of 3Com climbed 34% to $4.94 in trading Friday. Under the terms of the deal, Boston-based Bain Capital and Huawei will acquire 3Com for $5.30 per share or a total of $2.2 billion, representing a premium of 44% over its closing share price on Thursday. In a statement, 3Com CEO Edgar Masri said that the company had determined the sale represented the best value for shareholders and would better position 3Com as a global networking leader. Friday's acquisition marks the second deal in less than a year between Huawei and 3Com, which earlier this year bought out Huawei's 49% stake in H3C, a joint venture the companies built in 2003 to develop communications and networking products for the Asian market. Late last year, when 3Com's struggling performance gave rise to acquisition speculation, 3Com moved to quiet the talk by buying H3C outright. When the deal was finalized earlier this year, analysts described it as a very risky step for 3Com, which had to borrow close to half the $882 million purchase price. Nonetheless, many also said that it was a risk worth taking because expansion into Asia was 3Com's best hope for a turnaround. But 3Com had a tough time integrating H3C and to date has shown no strong improvement in its results. "H3C at one time had growth rates of 50% year over year but in the most recent quarter grew only 10% year over year, RBC Capital Markets analyst Mark Sue said. 3Com's revenues have fallen for three straight quarters to $310.9 million in the quarter ended in June. It reported revenue of $323.4 million in the prior quarter. The company's net loss, meanwhile, grew to $93.4 million in the latest quarter, from $8.9 million in the prior quarter. "It certainly seemed like they were having difficulty integrating H3C," said Recarey, who noted that 3Com faced a host of unexpected challenges, including managing Asian distribution channels. Despite these challenges, he said 3Com today is showing some modest signs of a turnaround, which make it a good candidate for a private equity makeover. With Huawei once again having a hand in Asian distribution, he said, 3Com will have a better opportunity to grow its business globally. "They are still in a place where they are taking one step forward and one step back," he said. "But they have come from a place of taking one step forward and two steps back." For Bain Capital, the deal adds to several technology investments. Bain has been an active player in the technology and business services space. In June, Bain-backed Sensata Technologies Inc. agreed to buy Airpax Holdings Inc. from Chicago Growth Partners and Norwest Equity Partners for $276 million. The firm's portfolio also includes SunGard Data Systems Inc., MEI Conlux, the West Chester, Pa.-based payment systems unit of chocolate candy and pet-food giant Mars Inc., and insurance software business Applied Systems Inc. Earlier this year, Bain, Silver Lake and Warburg Pincus sold U.S. software group UGS Corp. to Germany's Siemens AG for $3.5 billion. --Christine Idzelis in New York contributed to this report.  Deal Video
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